London & Ilford Ltd v Sovereign Property Holdings Ltd (2018)

Summary

In relation to the purchase of a property for residential development, the court upheld an interpretation of an overage agreement entered into between the parties which provided for the payment of a further sum to the seller if development consent were obtained during the overage period. The court rejected the purchaser's argument that such consent had no utility unless the residential units were capable of being built in compliance with building regulations.

Facts

The appellant appealed against an order for summary judgment in relation to the interpretation of an overage agreement it had entered into with the respondent.

The appellant had purchased a property from the respondent to redevelop for residential use. The purchase was subject to an overage agreement, a draft of which was annexed to the sale contract. The overage agreement, which was entered into on completion, provided that the appellant would pay the respondent £750,000 if a "first trigger event" occurred during the overage period. The definition of the first trigger event was the appellant's receipt of prior approval from the local planning authority for the development of 60 residential units at the property. "Development" was defined as "development of the property comprising of a change of use ... to a use falling within Class C3 (dwellinghouses) of the permitted development order. "Residential units" were defined as "residential dwellings to be comprised in a development at the property for residential use for sale or lettings". Prior approval was obtained within the overage period and the respondent claimed the sum of £750,000. The appellant denied liability to pay, arguing that the purpose of the overage agreement was to provide a commercially valuable benefit in exchange for payment and that prior approval for a change of use was valuable only if the 60 units could be lawfully built, whereas it had transpired that construction of the full number of flats would contravene the building regulations because of incompatibility with fire escape provisions. Summary judgment was granted in the respondent's favour.

The appellant submitted that the judge had given insufficient weight to the provisions of the amended overage agreement and to the reference to the words "residential units ... for residential use for sale or lettings" when construing the first trigger event, and that his decision had placed the commercial risk on the appellant instead of on the respondent as owner of the property.

Held

The regime for planning and development consent and the regime surrounding building regulations were entirely separate in their purpose, legislation and enforcement. The first trigger event for an overage payment was clearly and expressly concerned with change of use, which was a planning and development issue; there was no mention in the overage agreement of compliance with building regulations or any other requirement that might need to be satisfied before the residential units could be built. If it had been intended that the first trigger event should require any such compliance, the parties would have made express provision to that effect. Both were experienced developers and had been professionally advised. The words "for residential use for sale or letting" in the definition of residential units was an impossibly weak foundation for the appellant's contention that the respondent also had to demonstrate that all 60 units were capable of being built, by reference not only to planning requirements, but also to building regulations. By agreeing the first trigger event by reference to prior approval for the defined proposal, the parties had attached significant value to the receipt of that approval. An ordinary reading of the agreements did not support the appellant's argument that such prior approval had no utility unless it related to residential units that were capable of being built. Moreover, the appellant's submission as to the distribution of risk ignored the fact that it was a sophisticated developer with its own keen commercial interest in the successful development of the property. It was unrealistic to conclude that it would put itself in the position of being dependent on the respondent, as the seller, to decide on a viable scheme of development. The plans annexed to the agreements were exchanged between the parties before the agreements were made and the appellant had been well able to satisfy itself on the viability of the scheme for the 60 residential units before agreeing to it (see paras 30-32, 34, 36, 42-44 of judgment).